How to Read Your Backlog Like a Banker: Timing, Diversification, and Gross Profit Discipline | Ep. 391

How’s your backlog right now? In Part 6 of the Construction Accounting Series, Eric sits down again with CPA Kathe Barrington to unpack what backlog really is, and what it isn’t. They dig into why committed-but-unstarted jobs belong on your WIP the day you’re awarded, how to use backlog to forecast labor, equipment, and cash, and why a backlog that looks great in aggregate can still leave you with a nine-month hole in the schedule.

Kathe lays out the ideal backlog-to-revenue ratio, the red flag of growing backlog with compressing gross profit, how client and project-type concentration creates fragility, and who needs to be in the room for the monthly backlog review. If you want backlog to function as a real planning tool, not a vanity number. This conversation is the blueprint.

What you’ll learn:

• – What backlog actually is – remaining contract, remaining cost, and remaining gross profit to complete

• – Why letters of intent and verbal awards should NOT count as backlog

• – Why unstarted-but-committed jobs belong on your WIP the day you’re awarded (and what bank & bonding are looking for)

• – How to translate a WIP snapshot into a month-by-month forecast of labor, equipment, and cash

• – How far out you should be forecasting labor (hint: 6–12 months minimum)

• – The ideal backlog-to-revenue ratio – and why 3–6 months makes Kathe nervous

• – How backlog profiles differ between GCs and subs, and what that means for planning

• – The aggregate-number trap: why jobs bunched up at the same finish line signal trouble

• – When you can tighten margins as you scale – and when compressing gross profit becomes dangerous

• – Client and project-type concentration risk – diversification as insurance

• – How often to review backlog (monthly, with the financials) and who belongs in the room

• – The questions that should drive the conversation beyond the numbers

• – How to use backlog data when the market shifts – lessons from 2008 and COVID

• – The three questions Kathe asks first when she takes on a new client’s books

Listen or Watch the Episode

Key Takeaways

1. – Backlog is a planning tool, not a trophy. If it’s not driving decisions about labor, cash, and bid strategy, you’re leaving money — and safety margin — on the table.
2. – If it’s committed, it belongs on the WIP. Waiting for the first labor hour to post means two months of blind flying.
3. – Watch the timing, not just the total. A big backlog with jobs stacked in the same month is a cash-flow cliff in disguise.
4. – Growing backlog + compressing gross profit = danger. Scale without margin discipline is how fade and one bad job turn ugly fast.
5. – Diversify your basket. Customer and project-type concentration should be monitored monthly, not disclosed after it’s a problem.
6. – Review backlog monthly with your project managers, owner, project engineers, and contract-side accounting staff — in the same meeting as the financials.

About the Guest

Kathe Barrington is a CPA with 30+ years of accounting experience — 20 of those focused on construction. Through KB CPA, she works as a fractional accounting resource for commercial construction companies (GCs and specialty contractors) that don’t need a full-time CFO or controller but do need serious, construction-literate financial support. She works hourly with a full team behind her.

Connect with Kathe

LinkedIn: Kathe Barrington, KB CPA

Facebook: Kathe Barrington / KB CPA

The Construction Accounting Series with Kathe Barrington

This is Part 6 of an ongoing series. Catch up on the full run:

• Part 1 — Ep. 357: WIP Reports Made Simple: The Key to Stopping Hidden Job Losses

• Part 2 — Ep. 359: How to Use Your WIP to Protect Cash and Grow Profitability

• Part 3 — Ep. 364: Why the Field and Accounting Are Both Right (Physical Progress vs. Financial Reporting)

• Part 4 — Ep. 368: Underbillings Bad. Overbillings Better: The Cash Flow Truth Construction Owners Can’t Ignore

• Part 5 — Ep. 377: Why Your Jobs Look More Profitable Than They Are: Indirect Allocations and Overhead in Construction